Citi earnings disappoint; BofA beats estimates

Jan. 17, 2013
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by USA TODAY

by USA TODAY

NEW YORK (AP) -- Citigroup earned 38 cents a share in the fourth quarter, well short of the 97 cents a share forecast by analysts, while Bank of America posted fourth-quarter earnings of 3 cents a share as it cleaned up problems from its mortgage unit.

FactSet's consensus earnings estimate for Bank of America was 2 cents a share. Bank of America made $732 million in the last three months of 2012, down from $1.99 billion in the period a year ago. In the prior quarter, the bank earned 15 cents a share. Both stocks fell Thursday.

It was Citigroup's first quarter under the leadership of CEO Michael Corbat, who took the helm after Vikram Pandit resigned in October.

"We recognize that our net income today doesn't yet reflect the amount or caliber of earnings that our shareholders expect and our franchise is capable of," Corbat said on a conference call with analysts to discuss the results.

Corbat's first bold move was a decision, announced in December, to cut 11,000 jobs, close dozens of branches and trim its consumer banking business in some countries. More than half of the job cuts were to come from the company's consumer banking unit. Citigroup took a previously announced charge of $1 billion in the quarter related to that "repositioning" process.

The bank has cut 7,000 jobs since the year-ago quarter, about 3% in its overall work force. Since the previous quarter, 3,000 jobs were eliminated. Citigroup now employs 259,000 people.

Citi earned $1.16 billion after paying preferred dividends, or 38 cents per share, in the three months ended Dec. 31. That compares with $933 million, or 31 cents per share, in the same period a year earlier.

Excluding one-time costs related to restructuring and accounting for outstanding debt, the bank earned 69 cents per share. That's well below the 97 cents per share analysts polled by FactSet were expecting.

Citigroup's Latin American and Asian operations, a traditional source of strength for the bank, helped drive the earnings growth. Net income from both regions rose 16% over fourth quarter of 2011.

In Europe, the Middle East and Africa, net income fell 6% from the previous year.

Revenue rose to $18.7 billion, up 8% from a year earlier and slightly below forecasts.

Citi's net interest revenue, which includes interest collected on loans and interest paid out to depositors, edged up to $12.15 billion from $12.08 billion a year earlier. Banks' interest income has been squeezed by ultra-low interest rates and competition for depositors. They are increasingly reliant on fee-based services like investment management and advisory offerings.

The bank's non-interest revenue, which includes fees and other categories, rose 18%, to $6.02 billion from $5.09 billion.

Citigroup reported $1.3 billion in legal and related expenses in the quarter.

A big part of the legal expense was a settlement with federal regulators announced last week related to Citigroup's foreclosure practices. The bank allegedly took part in industry-wide practices that caused people to be foreclosed on illegally. It took a charge of $305 million in the quarter to cover its agreement with the Office of the Comptroller of the Currency and the Federal Reserve.

The higher legal expenses also included various expected costs related to its U.S. consumer business, which bank officials would not specify.

Citigroup also released less money from its rainy-day fund to cover souring loans - $86 million, compared with $1.47 billion a year earlier.

In a departure from an industry-wide trend, Citi said it originated fewer mortgages than in the year-ago quarter: $16.8 billion, down from $21.1 billion. Mortgage originations increased at the nation's other top banks, including JPMorgan Chase, Wells Fargo and Bank of America.

Earnings forecasts for Bank of America plunged from an average 14 cents a share last week after the bank announced multi-billion dollar settlements with mortgage-finance giant Fannie Mae and federal banking regulators. The bank said fourth-quarter results would be reduced to a "modest" profit.

Bank of America agreed to pay Fannie Mae $3.6 billion and buy back some loans it sold to Fannie Mae for an additional $6.75 billion.

Bank of America and Citigroup were among 10 banks that signed onto last week's $8.5 billion settlement with regulators over foreclosure and mortgage servicing issues involving borrowers in 2009 and 2010.

Bank of America earned $367 million in the last three months of 2012 after paying preferred dividends, down from $1.6 billion in the period a year earlier.

Revenue was dragged down by the Fannie Mae settlement. It fell to $19.6 billion after stripping out an accounting charge, down from $26.4 billion in the same period a year ago.

In a call with reporters, Chief Financial Officer Bruce Thompson said the bank is much better positioned than it was a year ago. He emphasized a jump in deposits, higher fees from investment banking, and shrinking debt.

As for future litigation in the mortgage unit, Thompson said, "I can't tell you exactly what else could be out there. But what I can tell you is that we put a lot of risk behind us in 2012."

Mortgages, which were a big revenue source for Wells Fargo and JPMorgan Chase in the fourth quarter, were also up at Bank of America, which funded 42% more mortgages over the year.

Bank of America has been struggling to figure out its identity as a mortgage maker. It catapulted to a top spot in mortgage banking in summer 2008, when it gobbled up Countrywide a few months before the financial crisis imploded. Countrywide was a California-based mortgage lender known for exotic loans, and Bank of America hailed the purchase as a triumph.

But the purchase has brought enormous headaches for Bank of America, including regulatory investigations, shareholder lawsuits and quarterly losses.

That's influenced Brian Moynihan, who became CEO a year and a half after the Countrywide purchase, to retreat from mortgages and sell off related units. Bank of America now controls about 4% of the U.S. mortgage market, compared to 22% shortly after it combined with Countrywide, according to the trade publication Inside Mortgage Finance. That puts it behind No. 1 Wells Fargo, with 30%, as well as JPMorgan and U.S. Bank.

Thompson said the bank expects to expand the mortgage unit, focusing on borrowers who are already bank customers. He declined to comment on the bank's shrunken market share.

"What we're focused on is doing more with our consumers, continuing to grow this, and if we do that well, where we are with our peers will take care of itself," Thompson said.

Citi's fourth-quarter results cover a tumultuous period that bracketed the ouster of CEO Vikram Pandit in October and an announced restructuring in December that involved 11,000 job cuts, about 4% of its workforce.

Pandit, who took charge of the bank in 2008 at the peak of the financial crisis, reportedly clashed with the board over strategy and the bank's relationship with the government. He was succeeded by Michael Corbat, who had led Citi's Europe, Africa and Middle East division.

Contributing: Associated Press

When Citi unveiled an overhaul in December, it said the moves would result in charges of $1 billion in the fourth quarter and $100 million in the first half of 2013. It said it expected expense savings of $900 million this year and $1.1 billion a year starting in 2014.